Retail sales slide

Jobless claims also rise, reinforcing concerns about timing of recovery

Christopher S. Rugaber Associated Press

Published 1:00 am, Friday, August 14, 2009

WASHINGTON — Retail sales disappointed in July and the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week. The latest government reports reinforced concerns about how quickly consumers will be able to contribute to a broad economic recovery.

"There is really no positive spin to put on these numbers," Jennifer Lee, an economist with BMO Capital Markets, wrote in a research note. "The U.S. consumer remains very weak. The jobs situation, while slowly improving, is still dismal."

The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.

While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump — the biggest in six months — there was widespread weakness elsewhere.

Some of Europe's largest economies also benefited from government programs to support the auto industry. Germany and France returned to economic growth in the second quarter, raising hopes the recession in the 16-country euro area may end sooner than thought. Europe's two biggest economies each grew 0.3 percent from the previous three-month period, surprising analysts and technically ending their worst recession in decades.

The July dip in U.S. retail sales was the first setback following two months of modest gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast. And excluding both auto and gas purchases, retail sales fell 0.4 percent — the fifth straight monthly decline.

Households are working to pay down debt and add to savings, longer-term trends along with little job growth making it "probable that the U.S. consumer will not be much of a help during the early stages of the economic recovery," Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc., wrote in a note to clients.

The Labor Department said initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts expected new claims to drop to 545,000, according to Thomson Reuters.

The number of people remaining on the benefit rolls, meanwhile, fell to 6.2 million from 6.34 million the previous week. Analysts had expected a smaller decline.

The continuing claims data lags initial claims by one week.

The four-week average of initial claims, which smooths out fluctuations, rose by 8,500 to 565,000. That reverses six straight weeks of decline.

A weak job market hurt sales last month. Gas station sales plunged 2.1 percent in July, due more to falling pump prices than weak demand. Excluding that drop, retail sales would have posted a modest 0.1 percent increase.

Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent.

Wal-Mart on Thursday reported virtually flat second-quarter income compared with a year ago, but the results beat Wall Street expectations and the world's largest retailer raised the low end of its profit outlook as a series of cost-cutting moves draw frugal shoppers away from rivals.

Still, the July weakness in overall retail sales highlighted worries about the potential strength of the recovery from the recession.

Consumer spending accounts for about 70 percent of total economic activity.

"Households are in no position to drive a decent economic recovery," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.

While there have been recent signs of stability in the U.S. housing market after three years of plunging prices, record foreclosures persist.

The number of U.S. households on the verge of losing their homes rose 7 percent in July, as the foreclosure crisis continued to outpace government efforts to limit the damage.

Foreclosure filings rose 32 percent from the same month last year, RealtyTrac Inc. said Thursday.